You might know the numbers, but can you do the math?
A modern business can be submerged in numbers. As collecting data becomes easier and more widespread, with the introduction of new software, it can be understandably difficult to keep on top of.
The key to utilising your data is identifying what key performance indicators are most relevant and communicating them clearly to the right people.
A limiting mindset – ‘Leave it to the number crunchers’
Many business leaders will rely on their financial department, or resident maths boffins, to make sense of these details and feedback the relevant information. This creates an information silo within the company that restricts knowledge. It’s good to have specialists and technicians with particular skills, but running a successful organisation is a team game, so the skillsets of these individuals should benefit the wider group.
Much of the uncertainty that surrounds data is due to presentation. Packed spreadsheets can be dense and confusing, so contextualising the figures in a meaningful way can make them accessible. The way data is reported to external agencies will need to be consistent with convention, but this does not mean the details cannot be rearranged more simply for internal purposes. As leader, you can instigate this change.
A missing element – Comparison
Comparing figures can give them more meaning, therefore showing the variance with other numbers can be an effective way to present information. For example, listing the current figure alongside those of the last month, the last year, etc. can be useful for identifying trends and taking productive action. The percentage variance calculated from these metrics will highlight the urgency of attention each area should receive.
As part of my coaching, I suggest, rating each either ‘red, amber’ or ‘green’ (or ‘ragging’) in terms of required scrutiny, to order my clients’ approach. Having pre-set targets for these figures is essential for this task, as this will clearly demonstrate whether goals are being met.
A different perspective – Contextual analysis
Ratios are another way of comparing figures, which can provide greater contextual analysis. For the majority of ratios, it’s easy to find both industry specific and more generic benchmarks for comparison. These might include:
Liquidity ratios – these demonstrate a company’s ability to pay their short-term debts and liabilities. A business model is fundamentally sound if these are in acceptable parameters.
Activity ratios – these validate how efficiently a business operates, calculated from how well it uses its resources to generate sales and profit. Using these to eliminate waste is vital before a business intends to grow.
Leverage ratios – these will prove the ability to pay long-term debt, and consequently the risk a company faces. Again, these determine a company’s potential for growth, with regard to their true available resources.
Performance (or profit) ratios – these show the ability to generate a return for your shareholders. A successful business should have a good level of profit generated each year to underpin progression.
As important as financial metrics ultimately are, they can seem more relevant and useful alongside other non-financial figures. This could include data such as customer satisfaction ratings, which would contribute to retention and spend, or marketing intent, which would increase an organisation’s visible presence. Presenting this information as more than numbers can open more sophisticated analysis up to a wider pool of people.
Turn what can seem like meaningless symbols on the page into vital information that facilitates more effective leadership. Data is more important than ever, and harnessing it effectively is invaluable in identifying the best path forward.
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